Unilateral new tariffs imposed by the United States on $34 billion of Chinese imports took effect on July 6. China levied tariffs on US imports based on the “equal scale and strength” principle on the same day. On July 10 the US administration escalated its trade bullying and proposed new tariffs of 10 percent on $200 billion of Chinese goods.

In the guise of national security and trade imbalances, the US government has recently put up trade barriers and restricted foreign investment. The US  slapping tariffs against China is a short-sighted approach. It is like palliative that does not address the real issue of trade imbalances and establish fair and reciprocal trading relationships in the long run, but a great historical error that could unleash retaliation and actually backfire. Not least the large majority (59 percent) of Chinese imports ($34 billion) subject to the US tariffs from July 6 were produced by foreign-invested enterprises in China, with the US ones making up a considerable part.

More specifically, while in the short-run the US unilateral trade restrictions might boost its domestic industries in terms of increasing employment or protecting certain sectors, in the medium-run or long-run protectionism will slow down economic growth, destroy jobs, encroach on the interests of enterprises and consumers worldwide, and tarnish US credibility and international image as the world's biggest economy.

On the upside, traditional manufacturers in sectors such as aerospace, IT, auto parts and medical instruments may benefit from import tariffs. However, those sourcing components from overseas would fret about punitive tariffs that will antagonize their long-standing trade partners and harm their exports and competitiveness due to impending higher production costs, forcing them to look outside the US to maintain production. The US tariff hike will increase the inflationary pressure since Chinese imports have been helping keep inflation at a relatively low level. According to a study by the US-China Business Council, US trade with China saved US households up to $850 on average annually.

The US tariffs together with the potentially increasing uncertainty over its economic policy have fueled worries about the economic outlook and undermined markedly business sentiment among companies as well as the trust and mutual willingness to cooperate. Foreign investment in the US has created jobs and contributed significantly to the local economy. According to a 2018 report by the World Trade Center Los Angeles, there are an estimated 10,378 foreign-owned companies in southern California, representing approximately 1.2 per cent of all businesses in the region, of which 467 are Chinese-owned, responsible for creating 15,968 jobs and paying $990 million in wages. Amid possible further restrictions on investment from China in science and technology, some businesses have slowed their pace or even canceled their plans to invest.

The US tariffs can only cause other countries to trade more among each other, leaving the US isolated. The trade structure between China and European economies like France and Germany is even more complementary. More of China’s imports from EU trade partners for passenger aircraft and vehicles, agricultural products, and industrial and power generation equipment are expected.

What follows US President Donald Trump's tariff tricks is the outpouring of about $100-billion tit-for-tat tariffs from nearly all US major trade partners concerned. The impact of retaliations would be felt across sectors in the US, but agriculture would bear the brunt. China is the main destination for US agricultural exports, the largest buyer of soybean, cotton and pork by-products and the world's top soybean importer. According to the US Ministry of Agriculture, the US exported to China about $22 billion of agricultural products in the last fiscal year, against the total US agricultural exports of $140.5 billion. As the Sino-US economic and trade frictions escalated, the market prices of various agricultural products fell significantly and CBOT soybean futures fell to its lowest level in 10 years on June 19. According to a survey by the Brookings Institution, about 2.1 million US jobs in the 40 industries of the 234 categories may be affected.

China is in the process of further opening up its markets especially the services sector. China has slashed tariffs for consumer goods and vehicles and auto parts effectively from July 1, which will benefit people in both China and the rest of the world. The US risks shutting the door on this bonanza as the Trump administration is seemingly making all out efforts to have the US left out of the whole Chinese market.

Since 2017, the US economy has been recovering, the employment market has been improving and inflation has been rising gradually. The continued fermentation of Sino-US trade war will transmit stagflationary pressures by encouraging simultaneously economic contraction and inflation. The US unilateral trade move could be “cent wise and dollar foolish” by bringing downward pressure on the US economy, impeding stable growth and wiping out all the benefits brought by its previous policies including deregulation and corporate tax reduction.

The US imposing tariffs on Chinese imports outside of the established WTO rules is by and large counterproductive to its pursuit of balanced trade and dooms its own trade aspirations. The right direction is for the US to pull the brake on escalating hostilities and engage in more measures that jibe with the law of economic development and conform to the tide of the globalization.

Yongfu Huang is Senior Fellow at the ICC of the National Development and Reform Commission of China and columnist at Asia Times on global development. The views expressed do not necessarily reflect those of China Watch.

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